Demergers

Overview

A demerger involves the reorganization of a business or fixed trust group by splitting its operations into two or more entities or groups. Under a demerger, the owners of the head body of the group (that is, the shareholders of the company or unit holders of the trust) acquire a direct interest (shares or units) in an entity that was formerly part of the group (the demerged entity).

Example

Demerger

Peter owns shares (his original interest) in Company A. Company B are a wholly owned subsidiary of Company A. Company A undertakes a demerger by transferring all of its shares in Company B to its shareholders. Following the demerger, all of the shareholders in Company A, including Peter, will own all of the shares in Company B (their new interests) in the same amount that they hold their shares in Company A.

Demergers that happened on or after 1 July 2002

If you received new benefit in a demerged entity under an suitable demerger that happened on or after 1 July 2002, you need to be aware of the following capital gains tax (CGT) consequences:

  • you may be entitled to choose a rollover for any capital gain or capital loss you make under the demerger
  • you must calculate the cost base and reduced cost base of your interests in the head entity and your new interests in the demerged entity directly after the demerger.

 When is a rollover available

For the rollover to apply, the demerger must be an eligible demerger. Generally the head entity undertaking the demerger will counsel owners whether the demerger is an entitled demerger but you should seek our advice if you are in any hesitation. We may have provided advice in the form of a class ruling detailed to the demerger, confirming that the demerger is an eligible demerger.

For more information on Etax, Mytax and online tax return, please contact us at 1300768284 or you can email us at enquiry@taxrefundonspot.com.au